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The Biotech IPO Scorecard: Who’s Up, Who’s Down in 2013

Remember Plexxikon? The Berkeley, CA-based company had a lot of talent for structural biology-based drug design, an impressive new treatment for melanoma, and a strong management team.

Two years ago, nobody on Wall Street cared one whit. Plexxikon flirted with the idea of going public, found little interest, and sold itself off to Japan-based Daiichi Sankyo for a more than 10-fold return on investment. It was a poster child for how dead the biotech IPO market was in 2010 and 2011.

My, how things have changed.

Everybody in biotech is buzzing now about the revival of the IPO market. Cambridge, MA-based Epizyme (NASDAQ: EPZM), the developer of cancer drugs based on epigenetic biology, commanded top dollar for its IPO last week and saw its shares boom more than 50 percent in its first day on the Nasdaq. Princeton, NJ-based Omthera Pharmaceuticals had a brief life as a public company, as it agreed to be acquired last week by AstraZeneca for a fat, 88 percent premium. In the month of May, eight life science companies went public, the most in any month since 16 life sciences companies arrived on the public markets in August 2000, according to The Burrill Report.

While many investors surely remember getting burned on overhyped companies during the genomics-fueled biotech bubble days, and many know how tough it is to make new drugs or diagnostics, some apparently have forgotten. The Great Recession of 2008 killed much of the appetite investors once had for speculative biotechs, but those days apparently are appearing farther away in the rear-view mirror. Biotech is hot again in the eyes of generalist investors. The broad Nasdaq Composite Index is up 14 percent year-to-date. Bigger money is being made in biotech, as the Nasdaq Biotechnology Index is up a sizzling 31 percent. And this trend didn’t just pop up last week. The Nasdaq Biotech Index grew by 32 percent last year, outpacing the broader Nasdaq Composite, which increased by about 16 percent. Some of these gains are driven by fundamentals, as we’ve seen some very impressive new drugs get developed for cancer, cystic fibrosis, hepatitis C, macular degeneration, and more.

Those gains are starting to reverberate across the sector. Suddenly, biotech companies who never would’ve had a snowball’s chance in you-know-where of going public one or two years ago are whipping up S-1 filings, forming a conga line to go public. During the post-recession years, typically only about 10-12 life sciences companies would go public each year. This year, I count 17 healthcare/life sciences companies that have done it already through the first five months. (If I’m leaving anybody out, please let me know).

Who are all these companies? How many are really good, like Plexxikon? How many are up from their debuts? How many are down? Will they go on to achieve greatness and spark the public imagination for biotech, or will they squander the opportunity? Who’s in line to make the big bucks from these precious “liquidity” events?

I can only go so far in answering those questions, since I have only written about a handful of these companies during their private days—Epizyme, Tetraphase, Receptos, KaloBios, and Ambit Biosciences. But I tried to wrap my arms around the IPO class by making a chart with some key data points on how they’ve done so far.

There’s already some commentary floating around about how things are getting frothy for biotech IPOs. More froth would be great for entrepreneurs and venture investors trying to raise money or get a return on their money, but not so great for all the regular folks who now have more of their mutual fund holdings parked in a dicey sector.

I’m not ready to accept that we’re in a biotech bubble yet, although it certainly looks like there’s potential for storm clouds to form here. Of the 17 IPOs this year, 12 are trading up from their IPO price, four are down, and one is dead-even. The returns so far are solid, but not exactly 1999-like. There are some solid companies in there, like Epizyme, and a few others that strike me as suspect.

I suppose that’s how it should work. You have to take some good with the bad, and let the market sort out the winners and losers over time. Personally, I’d like to think it means that the Plexxikons of today at least have a decent chance of being rewarded, one way or another, for coming up with important new innovations for patients. What do you think the surge in IPOs will mean for the sector, and what it doesn’t mean? You can leave a comment in the space below.

Good article. My guess is that the solid post-IPO performance is better than what we saw in previous markets. The JOBS act has enhanced the dialogue between buyers and seller prior to the offering, resulting in more efficient pricing for complex, data-driven deals that characterize biotech. Finally, Washington got something right.